11 per cent Inflation shock; lowest close for markets since Aug 07

20 June 2008

Inflation in double digit has bruised the markets very badly; blood-thirsty bears marched harshly on bulls and remained active through the day. The Sensex and Nifty hit new 2008 lows; it was lowest closing for both indices since August 2007. Indices of rate sensitive sectors like Bankex, Realty and Auto also touched new 2008 low. Advance:Decline ratio was pathetic. All BSE indices battered severely. Experts say that RBI will have to use monetary tools to contain inflation.

Wholesale Price Index for the week ended June 7 stood at 11.05% as against 8.75% in earlier week. This is way above markets' estimation, which was expected around 9.93%. It is at 13-year high; last time inflation touched a high of 11-11% in May 1995. Oil price hike, which declared on June 4, 2008, was the main reason behind this higher inflation. Commerce Secretary says that they see high inflation for next 2 months and will consider food grain, vegetable price control to contain inflation.

Finance Minister says, "Rise in inflation was expected and we will have to look at stronger steps on fiscal, monetary side. Hike in petrol price is unavoidable."

Analysts feel that fuel price hike has not fully reflected in inflation numbers. It will see more impact in the next few weeks. They expect that the RBI will hike CRR or Repo rate before Monetary Policy. It will affect growth in infrastructure sectors as capital availability become scare, squeeze banks margin and impact on auto sales.

Moody's says, "RBI looks set to further tighten Monetary Policy and not to wait until next formal review. Inflation and tightening monetary policy will weigh on investor sentiment."

Broader indices have shattered completely and hit new 2008 lows again in just 10 days after June 10. The Sensex and Nifty hit new 2008 lows of 14,519.27 and 4333.60, which broken earlier lows of 14645.3 and 4369.8. Volumes were very high today; total turnover traded by the markets stood at Rs 85088.58 crore. This includes Rs 21056.2 crore from NSE Cash segment, Rs 58533.66 crore from NSE F&O and the balance Rs 5498.72 crore from BSE Cash segment.